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A Better Picture for the Japanese Economyby Louise Curley September 12, 2005

The second preliminary estimate for Japanese Gross Domestic Product in the second quarter was significantly higher than that shown in the first estimate released August 12. Total GDP is now estimated to have risen 3.3% at an annual rate in the second quarter compared to the earlier estimate of 1.1%. The major causes of the increased momentum in the economy were higher estimates of activity in the business sector. Plant and equipment expenditures which earlier were estimated to have increased at an annual rate of 9.0% are now estimated to have increased 15.4%. At the same time, inventory liquidation is now estimated to be about one third as large as previously estimated--3,538.8 billion 2000 chained yen at an annual rate versus 10,892.4 billion 2000 chained yen. Details of the first and second estimates are shown in the table below.

As a result of the strength in the business sector, domestic demand is now estimated to have risen at annual rate of 2.43% compared with the earlier estimate of 0.36%, in spite of a reduction in the estimated annual rate of increase in private consumption from 3.03% to 2.42%. Moreover, the increase in domestic demand over a year ago is slightly above the increase in total GDP for the second time since early 2002 as can be seen in the attached chart.

While the revised figures depict a stronger second quarter than previously estimated, the second quarter growth is still below that of the first quarter when the economy rose at an annual rate of 5.75%. The continued positive growth is, however, in sharp contrast to the experience of 2004 when both the second and third quarters showed decreases in activity.